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services PE was not required to be a fixed place of business – and a client boardroom so qualified anyway/double counting of days for 183-day test permitted

The taxpayer (a U.S.-resident company, whose particulars and relevant transactions were treated as being representative of the second appellant) provided "strategic and financial advisory services" (para. 8) for a South African client during a three-phase engagement that went from February 2007 to May 2008. During this period it made 17 of its employees available, who came to South Africa as required – and three employees were each present in South Africa on a rotational basis (so that employees were present in South Africa for more than 183 days in 2007). The employees used the office premises of the client during normal business hours and "always had a presence" in (and the "exclusive use of" - para. 42) a particular boardroom (although other areas on the premises were also occupied from time to time) (para. 8). It did not file South African returns.

Art. 5(1) and 5(2)(a) to (f) of the South Africa-U.S. Double Taxation Agreement (the "DTA") were in the standard OECD Model form. However, subpara. 5(2)(k) also included:

the furnishing of services, including consultancy services, within a Contracting State by an enterprise through employees or other personnel engaged by the enterprise for such purposes, but only if activities of that nature continue (for the same or a connected project) within that State for a period or periods aggregating more than 183 days in any twelve-month period commencing or ending in the taxable year concerned.

After being referred by the taxpayer to a statement in the OECD Commentary that the listed examples in 5(2)(a) to (f) "constitute permanent establishments only if they meet the requirements of paragraph 1," Vally J stated (at para. 29) that the word "include" introducing the listed items in 5(2) expanded the meaning of permanent establishment so that "there is no need for a further…inquiry as to whether the requirements of article 5(1) are met", that the OECD comments on 5(2)(a) to (f) had no bearing on subpara. 5(2)(k) which "is very different …[as] it does not refer to a place of work, but rather to a form of work" (para. 31) and that the Technical Explanation indicated that the concept "that the place of business must be ‘fixed' in the sense that a particular building or physical location is used" did not apply respecting "the furnishing of services under subparagraph (k)" (para. 38).

Even if a 5(2)(k) permanent establishment were required to be a fixed place of business, this requirement was satisfied as the taxpayer "was, at all times, present in the boardroom during the tenure of the contract" (in contrast to Dudney, where "a sole individual providing services moved from one area to another" (para. 42). The taxpayer's submission that it was only permitted to use the boardroom to service the client flew in the face of the "permanent establishment" definition including a fixed place of business through which the enterprise's business is "partly" carried on (para. 43).

Although the taxpayer's employees were not present in South Africa for more than 183 days in the taxpayer's 2008 taxation year, it was permissible to tack on days from the previous year to form a 12 month period ending in the 2008 taxation year (during which the 183–day test was satisfied) as "the signatories to the treaty intended…to allow for double counting of the days" (para. 48).

A US corporation, which spent 15 months based in the boardroom in South Africa of a South African client providing consulting services argued unsuccessfully that it did not have a permanent establishment in South Africa. Vally J went on to find that a success fee received by the taxpayer in a subsequent taxation year during which it had no presence in South Africa was "attributable" to its previous permanent establishment there, and therefore was not exempted from South African tax.

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